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How To Responsibly Pay Others Back

January 15, 2013 by

paying backWe’ve all done it before.   At some point or another, we’ve had to borrow money from someone. Whether it was a forgotten wallet and a spotted $10 or a more serious situation, it isn’t always the best feeling to have to ask a friend if they can spare a few bucks. However, we all need help every once in a while, and there’s no shame in asking if you’re responsible in how you pay them back. Check out the tips below for ways to pay others back respectfully and maintain your relationship with them in the process.

Be timely.

Did you borrow $20 from a friend when a restaurant only accepted cash? Go out of your way to withdraw $20 from the closest ATM, write them a check, or make an electronic funds transfer as soon as you can.   Did you have to borrow a large sum of money from your parents during an emergency?   As soon as you’re able, sit down and take a look at your finances.   What can you afford as the first payment and when can you give it to them?   Do you owe someone, but you’ve forgotten the money the last couple times you saw them?   Rather than not mentioning it, make it a point to say you still remember and that you will get the money to them as soon as possible.   Showing that you want to pay someone back as quickly as you can instills confidence that no one is going to go unpaid.

Make a plan.

In most situations, the best way to pay someone back is by making a plan.   You may find it helpful to make a payment schedule if you do owe larger sums of money.   Perhaps you can take a little from each paycheck without depriving yourself of your basic needs.   Maybe you can sacrifice going out to eat with friends every weekend until you’ve paid your debt.   Look at your income versus your necessary expenses and see where you might be able to temporarily cut back.   Whatever you work out, be sure to communicate that with the person who lent you the money to let them know you’re getting back on track.

Write it down.

When you’ve committed to a payment schedule that you’ve thought out and written down, you’re more likely to stick to it.   Put your payment due dates on your calendar or set up a reminder in your smart phone. If you go the paper route, post it in your office or on your fridge. You can even give a copy to the person you’ll be paying.   For some people this may be overkill, but for others it lays everything out on the table so there are no questions left unanswered.

Don’t feel bad.

Like I said before, we’ve all been there at some point in our lives.   So, don’t let your guilt keep you from asking for assistance if you truly need it.   Likewise, don’t allow your guilt to keep you up at night if you can’t repay someone as quickly as you want.   Be open and honest with them about your situation.   They’re likely to understand if they were willing to spot you in the first place.

Occasionally, your quality time or willingness to help may be repayment enough or at least make a later payment acceptable.   Offer to help them move next weekend or watch the dog while they’re out of town as a gesture of good will.

Have you ever borrowed money from someone? How did you go about paying it back? Are you still friends with them to this day? I’d love to hear about it!

photo by 42Dreams

Filed Under: Debt Tagged With: , ,

How I Paid off $6,000 In Credit Card Debt

October 3, 2012 by

credit card debtI didn’t have credit card debt for long. I didn’t suffer for decades. I never had creditors calling me, and I wasn’t in bad enough shape to get turned down for a loan. Yet, I still felt the weight of it every day. That’s the reality of credit card debt. Whether it’s $500 or $50,000, it’s still a nagging feeling, something extra on your to do list, and something that’s quite difficult to improve if you’re not willing to change habits and get in the right mindset.

How It Started

I got my very first credit card at age 22 for one purpose and one purpose only: to buy my husband (then fiance) his wedding ring. I didn’t have the money to buy something so expensive at the time, so I wanted to put it on a zero percent card and pay it over time. Of course, you probably know how it goes. Something that started out innocently enough grew into putting gas on it here or there and then we used it to fund a little bit of our honeymoon, etc. I’m not proud of how it started, but I do like to be honest about it.

When It Got Worse

We were managing our debt well enough and always paid above the minimum. I suppose I always felt that I was trying to get it back to zero, but I never sat down to figure out how much it would take. We both had steady jobs and were never late on a payment. Then, my husband decided to apply to medical school. We spent hundreds in application fees, and then when he got into a Caribbean school, we lost his income.

The Peak

As someone who is a personal finance blogger now, I shake my head knowing exactly what we did wrong. We didn’t track anything we were spending, which is just absolutely amazing to me now, as someone who plugs everything we spend into an excel spread sheet throughout the month. But that’s now, and we’re talking about then. We had good jobs and a comfortable life, but we didn’t have enough in savings, and we certainly didn’t have enough for international plane tickets to send the hubs to school. At the peak, we both maxed out a $3,000 card each.

Chipping Away At It

Before that $6,000 peak, we were actually trying to pay it down. Like I said, I was always aware of our debt, and I often felt the weight of it. I always paid above the minimum, and even managed to knock out a credit card for a TV we owned prior to my husband going back to school. (Yes, I know. Credit card for a tv = bad. My how things have changed.)

18 Months of Work

It wasn’t until 18 months ago that I laser focused my efforts on this challenge. For 18 months straight, I focused heavily on paying it off. I wanted it gone. I wanted it out of my life. We were accruing student debt due to my husband’s medical school tuition, and I didn’t want the credit card debt to get out of hand too. I started working as a freelance writer on the side. It was slow at first, but a year later, I am able to add a considerable amount of extra money to our monthly income. I have used this extra income every month to slowly pay off the debt.

Victory

I was hoping for victory by the end of this year, but it came sooner in the form of a promotion at work. That first paycheck was all I needed to finish off the credit card debt once and for all. I’m actually very proud of myself. While my husband certainly contributed to these efforts by not spending needlessly and not complaining about modest meals, I feel as though this is a personal victory too because it showed me how much can be accomplished with good old fashioned hard work. We now have $500 extra dollars a month (an amount I had been paying on our credit card debt for almost 10 months). It’s time to go to the next goal, which is paying down our student loan interest and maybe saving for a vacation. We’re so excited, relieved, and proud to be here saying we’re credit card debt free. If we can do it, we know anyone else can.

Who else is working on their goal of being debt free?

photo by vectorportal

Filed Under: Debt, Family Finances, Frugal Living Tagged With: , , ,

When Financial Secrecy May Not be a Good Idea

November 25, 2011 by

financial secrecyOne of the areas of life we tend to be most secretive about is our finances. That’s a broad category of course, encompassing our income, expenses, assets, debt levels and credit standing. Now for obvious reasons we want to be secretive when it comes to giving out financial information as a matter of protecting our identityâ”that goes without saying. But the secrecy I’m talking about here deals with people, as in those closest to us.

It’s easy enough to see why we don’t want other people to know too much about our financial affairsâ”too much income and assets and other people might resent us; too much debt and poor credit and they might judge us. Who wouldn’t want to avoid that?

While we can argue the pros and cons as to how much of our financial lives we reveal to family and friends, there may be times when doing so is in our best interest.

Accountability

As much as we might not like the idea of driving on a road that’s monitored by traffic cameras, it’s equally true that we tend to behave better when we do. So it is anytime others have sight of what it is we do. It’s called accountability, and it’s a way of keeping us on the straight and narrow.

At a minimum, we need to keep our spouses in the loop as to what we’re doing with our money. While this might be self-evident, in my experience in the mortgage business, I’d come across people who didn’t want their spouses to know a about a certain savings or investment account, or about a debt or even a collection of credit cards. There may be all sorts of logical sounding reasons for this practice, but it’s doubtful that it leads to a happy place.

Whoever conceals his transgressions will not prosper, but he who confesses and forsakes them will obtain mercy.ââ”Proverbs 28:13

But beyond our spouses, there’s also an argument for having a close friend or family member (parent, sibling or adult child) aware of at least some aspects of our finances. By having someone else in the loop at least regarding the general state of our finances, we’re more likely to do the right thingsâ”or at least to stick to what it is we’ve declared to others we plan to do. It’s like have a second pair of eyes❠keeping watch over us.

When you have money problems

It’s ironic that the one time we most rebel against financial transparency is probably the time we most need to be open about it. Maybe we shouldn’t broadcast it to the world, but it’s generally better when a small number of people very close to us know what’s happening.

You should never go through a financial crisis alone; at a minimum you need trusted people to bounce ideas and strategies off of. In addition, when we’re going through troubles we’re not always thinking clearly, and that’s when an outside opinion becomes absolutely necessary.

Achieving savings, investment or debt payoff goals

If no one knows what our financial goals are it will be a lot easier for us to give up on them when the going gets tough. This is especially true if your goal is to pay off debt. Sometimes the pain of the effort can be offset by the greater pain that comes with disappointing people whose opinions really matter to us.

In general, financial goals are not always best accomplished in private. If you make a plan to begin saving money or to pay off debt, letting one or two others know what you’re doing is a way of making the plan official with an announcement. Think of it as an unwritten contract. Once that’s done, you’ll have greater incentive to follow through with the plan, if for no other reason than to show people you trust that you can be counted on.

In making your final arrangements

Grief and financial management are not compatible. Even though you commit your final arrangements to paper through a will, you still need to have at least one other person from outside your immediate family who will act as a point person at the time of your death to help your family cope with your loss. That person should have intimate knowledge of your finances beforehand.

Though we might think that our spouseâ”armed with a willâ”will be up to the task, that isn’t always true. Our immediate family may be too overcome with emotion to handle our financial affairs at the time of our death, to say nothing of dealing with banks, creditors, courts and tax authorities in the months that follow. Assigning beforehand a person that YOU trust to help settle your affairs can be one of the best provisions you can make for your loved ones.

How much of your finances do you keep hidden from close family and friends? Have you ever had problems because no one knew anything at all? Have you ever had problems because you revealed too much?

Filed Under: Family Finances, General Finance, Life Experience Tagged With: , , , ,

How the Financial Meltdown has Changed all the Rulesâ”or Should Have

November 18, 2011 by

financial meltdownBut godliness with contentment is great gain. For we brought nothing into the world, and we can take nothing out of it. But if we have food and clothing, we will be content with that. Those who want to get rich fall into temptation and a trap and into many foolish and harmful desires that plunge people into ruin and destruction. For the love of money is a root of all kinds of evil. Some people, eager for money, have wandered from the faith and pierced themselves with many griefs.ââ”1 Timothy 6:7-10 (Emphasis added)

Four years after it began, we still find ourselves mired in some level of the Financial Meltdown. We’re all sitting around waiting for politicians, economists and industry leaders to fix what’s broken in the economy, but have you noticed that doesn’t seem to be working? Maybe it’s time for us to get busy. And since we have the handbookââ”the Bibleâ”perhaps as Christians we need to take the lead.

Part of the reason that our leaders have been unable to fix the economy is purely because of the enormity of the problem. As much as we want to pin the blame for the mess on politicians, in truth the causes are so deeply rooted in our culture that fixing them defies easy solutions.

So where do we start?

 

It starts with money

I believe that we need to change our views and opinions of money, and align them with what we read in the Bible. Most of us are unaware that the traditional role of money has changed completely in just the past few decades.

In its essence, money is a medium of exchange. It’s used to facilitate trade between people and businesses and because it carries a standard value, it’s more efficient than barter. So far, so good.

But here’s the problem⦠In today’s economy, money is no longer just a medium of exchangeâ”it’s become an asset unto itself. We still use it to trade, but it’s become something much more. Success is now defined as earning, acquiring, preserving and growing as much money as possible. The end game is no longer to produce as much food, fish, minerals, shoes or widgets as possible, but to earn as much money as possible!

That’s a game changer, and it has a lot to do with the mess we’re in. Money manipulation has become more important than building a better mousetrap!

 

Money as wealthâ

What is it you think about when you see or hear the word wealth� From Biblical times up until about the end of the 19th Century this might have invoked visions of vast acres of rich farmland, a forest full of timber waiting to be cut, large catches of fish, coal mines or perhaps a thriving family business.

Do you notice something about each of these? They all refer to something tangible, something that’s being produced. Wealth was measured by what you added to the economy and community.

How do we see wealth today? Stocks, bonds, certificates of deposit, money markets, cash. Notice something about these? None of them are tangibleâ”they’re all paper. Stocks represent a share of ownership; they’re the way we own- and trade ownership in- the means of production, but are not means of production in themselves. All the rest are debt securities, which is to say that they represent a promise to pay, but nothing tangible.

The one possible wealth exception we have today, the one that actually represents something tangible, is real estate. But in the modern world there’s a caveat even with this. So much real estate has been purchased with debt (mortgagesâ) that’s often so large that the owner has little or no equity. Many property owners today are even in negative equity situations, owing more on their mortgages than their property is worth.

Wealth today is measured not in units of production as in days of old, but by the accumulation of pieces of paper.

 

Detaching money from the real economy

Here’s where we get to the root of the problem. Back when people grew, built, fixed or produced things for a living, there was a clear connection between being productive and earning a living. With the rise of money as a commodity in itselfâ”as the end game everyone now chasesâ”we’re now detached from actual production. Think about how many people work in money-related businesses, as compared to farming, manufacturing or the skilled trades.

The financial meltdown that started in 2007 has been commonly called the Financial Meltdownâ, but have you noticed that no one refers to it as the Economic Meltdownâ? That’s because the failure of what we loosely call the economy❠has been driven almost exclusively by financial factors. Could that possibly have something to do with the fact that in today’s world moneyâ”and all things closely related to itâ”have come to dominate all things economic?

When the ultimate economic goal becomes the creation of ever larger amounts of money, should we be surprised by the explosion of debt, the disappearance of real jobs, and the many Ponzi schemes that have flourished in recent years?

Those who work their land will have abundant food, but those who chase fantasies will have their fill of poverty. A faithful person will be richly blessed, but one eager to get rich will not go unpunished.ââ”Proverbs 28:19-20

 

How should Christians react to the financial meltdown?

I believe the time has come for Christians to realign our goals and set our sights on what is lasting. How do we do that? By changing our attitudes toward wealth and what it truly is.

Work. In the financial thinking of today, when we go out to look for a better job❠what we really mean is a better paying job, don’t we? That’s a pure play on money.

But perhaps if instead we sought work that we find fulfilling at a deeper level, money would become less important. Shouldn’t we be seeking our life’s callingâ”the work we’re meant to doâ”rather than just a higher paycheck? Maybe we should be asking ourselves, where can I be most productive?❠That needs to come back into the equation before work can be anything more than another component of the paper chase.

Investing. When we turn our money over to othersâ”mutual funds, investment managers, financial plannersâ”we’re asking them to get us a good return. Do we ever concern ourselves with what it is the money is invested in? We should.

We even seem content to have the money invested in exotic vehicles that we know little about, as if complication and complexity increase our chance at making a killing (they don’t). We need to invest only in what we do understand. How about investing in ourselves, investing in our own business, in the stock of companies that are either producing something tangible or providing a necessary service, in people (charity), or in our churches? Think of it as investing locally, in ventures we’re already familiar with.

Debt. If we could pick one cause to the financial meltdown that stands above all the rest, it’s debt! Culturally, we’ve come to believe that debt is benign, and once we reached that point the end result was inevitable. That needs to change. We don’t need to be borrowing to pay for entertainment, travel and consumer goods. And for those where we do need to borrow, we need to do so more conservatively.

We may need to borrow to buy houses and cars, but when we do we should 1) only buy well within our means, 2) make the largest down payment possible and, 3) take the shortest term we can afford. Paying off a loan (as opposed to rolling into a consolidation loan at a later date) should be a priority, otherwise we lock ourselves on a debt treadmill.

Family, community and church. It’s sad that we no longer think of these as wealthâ, but that’s exactly what they are. It’s equally disturbing that these very institutions that are so critical to basic life have degenerated in the great money chase of the past 50 years.

Family, community and church are the very foundations of civilized life and if we can’t invest our time, effort and money in them, then the quest to earn and amass more money will condemn us to chase that which we will never find.

What do you think that we as Christians should be doing to move the economy in a positive direction? Should we be doing anything at all? Scripture calls us to come out and be differentâ”does this also apply to economic and financial matters?

Filed Under: Investing Tagged With: , , ,

Biblical View on Paying with Cash to Get Out of Debt

October 12, 2011 by

cash to get out of debtHow many times do you hear or read that Credit Card A pays X-percent on their rebate program, or Chevyotassan Motors is offering zero percent financing on their 2011 model Q cars? How about 90 days financing as good as cash?❠Or the favorite of all credit offers–buy now and pay NO interest until January 2013?

You can’t blame businesses for trying to grease the wheels of their sales by offering too-good-to-pass-up financing deals. And maybe these packages are even all that they say they are. Does that mean you should jump and buy if they are?

Not if you’re already in debt. In fact your plunge into debt may have started with just such an offer. You get into one easy payment planâ, which is followed by another and still more. Before too long you’re on a debt treadmill that you aren’t sure you can get off of.

Getting into debt is always easier than getting out of it. There are different ways to get out of debt once you have too much of it, but the foundation of it all is changing your financial behaviorâ”and learning to pay with cash. And by cash, I mean debit cards, checks, automatic debits and the Federal Reserve Notes in your wallet that most of us refer to as moneyâ.

 

Getting out of debt starts with not using credit anymore

Part of the problem with debt is that it’s cumulativeâ”if you’re adding new debt before you’ve paid off old debt, the pile is only getting bigger. The first, best way to get out of debt then is to stop taking on new debt, and the way to do that is to put away your credit cards, ignore the come-on loan offers and pay cash on the barrel.

Cash is the only way to guarantee that you’re living within your means. People get caught up in favorable terms, like low interest rates or zero interest rates or no payments for six monthsâ, ignoring the basic fact that even if you have no interest to pay, you still have a debt to be serviced. Worse, you’re still paying with money you don’t have.

 

Use of debt is a form of voluntary bondageâ”at first

The rich rule over the poor, and the borrower is slave to the lender.ââ”Proverbs 22:7

Slave is a heavy word, and in a world that’s been running on easy credit for several generations, it isn’t one we normally associate with borrowing. Yet if you’re in debt to anyone, you have entered into an arrangement that approaches slavery on some level. For example, you are legally bound to pay the loan according to the terms of the loan agreement, which is to say that you’ve given at least partial control of your incomeâ”and even you’re assetsâ”to the lender.

No matter what soft or emotionally comforting labels you may place on your debt, your freedom of action will be limited by the loan. If you have several loans, the servitude will be even greater. Bankruptcy and foreclosure occur when lenders have control over more of your resources than you do.

Even if your debt situation doesn’t require bankruptcy or foreclosure, it will still restrict your life. You may not be able to change jobs, do mission work or make a geographic move because of your debt obligations.

You’ll free yourself of those limits when you come to equate cash with freedom, and debt with bondage.

 

Debt says I can❠when reality screams I can’t!â

Credit has become something like a financial drive-through window; its purpose for existing is mostly to keep the economy running. Don’t have any money? No problemâ”drive up to the credit window, get a loan, then pick up you’re merchandise at the front desk.

We’re paying a steep price for that convenience. Credit gives us the option to buy what we know we can’t afford, and sooner or later you’ll use that option even when the little voice inside❠is telling you otherwise.

Even if you pay your credit card balances in full each month, you’re still living on a floatââ”paying this months bills with next months income. If next month has a major expense surprise, or if your income is disrupted, this month’s bills might not be paid next month, but carried into the following month where it becomes permanent debt. That can’t happen if you pay for this month’s expenses in cash. Everything you buy is paid for so there’s never any debt being carried forward.

 

Like anything else that isn’t good for us, debt is mostly a bad habit

One of the problems with debt is that today we have a benign view of it. It’s less of a thing or event than it is a lifestyle. You generally see people who are either debt adverse, and therefore debt free, or those who see debt as a convenient enabler to get them from where they are to where they want to be. For people in the latter category, credit becomes a habit, a way of doing business. What’s so bad about that?

And lead us not into temptationâ¦ââ”Matthew 6:13

Is it a sin borrow money? Probably not. But it’s pretty safe to say that it IS a temptationâ”one that draws us to spend money we don’t have, to buy things we often don’t need and to extend ourselves into bondage. How well are we able to resist temptation when we put ourselves so close to it?

If we can put some distance between ourselves and creditâ”maybe not to see it as a sin, but not to view it as holy eitherâ”we take ourselves out of harms way. Cash is the best way to do this.

 

The simplicity of cash to the rescue

You’ll enjoy the following benefits if you begin paying cash for all of your purchases:

  1. You’ll never spend more money than you actually have
  2. You’ll never get stuck paying last months bills this month
  3. You won’t live in fear that you might have charged too much
  4. Your debts will stop growing, and as you pay them, they’ll eventually disappear
  5. As your debts fall, you’ll have even more cash either to spend or to save
  6. If you choose to save your extra cash, your savings will eventually replace credit as your preferred source of extra money
  7. As your savings grow, you can pay cash even for major purchases, like repairs, furniture and even cars
  8. When every thing you own is owned free and clear, YOU’LL be free and clear!

So simple, yet so powerful. Pay cash from now on, pay your debts faithfully and even if you do nothing else, in a few years, you’ll be debt free.

Filed Under: Credit, Debt, Life Experience Tagged With: , ,

5 Ways to Maintain a Clean Credit Score

September 19, 2011 by

clean credit scoreThe American public has been both confused and incensed at the debt debate, by not only at how prolonged and divergent both sides have been, but also at how the government allowed us to get into this unfortunate and avoidable situation. With a little bit of planning and diligence, bad credit can be avoided whether it belongs to the average consumer, or big government. It’s actually pretty easy to maintain a clean credit score.  An ounce of prevention is worth a pound of cure and there are some simple steps you can take before your credit rating starts to plummet.

 

Know Thy Credit Score

Credit scores are based on a combination of factors. Five key factors are as follows: payment history, mix of credit, level of debt, credit age, and recent credit. Even if you pass the test in all of these categories, keep in mind that credit reports are not faultless. An error on your credit report is not an unusual occurrence. For this reason alone, it is imperative that you check your credit report regularly; besides simple error, there is also the risk of identity theft and credit card fraud.

 

Keep Thy Balances Low

While it can be gratifying to be extended to a higher credit limit, it is no reason to run out and max out your cards. Keep in mind that the higher a balance you are carrying, the less available credit is being offered to you. This will adversely affect your credit score. Every so often, lenders will raise your credit limit if requested to do so; if you’ve had a credit card for a couple of years without an increase in your limit, it may pay to call the lender and request one.

 

Limit the Amount of Credit Applications

While credit inquiries are only a small part of your overall score, (10%), they do in fact count. There is no need to go crazy filling out credit card applications. Carrying one each of the three major cards should suffice for most consumers’ credit card needs. The same holds true for loans; applying for loans will lower your score. Keep in mind that new cards or loans will also lower your credit age when averaged in with your current number.

 

Keep Inactive Credit Cards Open

Contrary to what many would believe, closing unused or old credit cards will actually lower your credit score. Credit age counts for 15% of your overall score. Closing an older credit card will shorten the length of your credit age, thus lowering your score. Many erroneously believe that this act will be to their advantage, but in the end, they suffer lower credit scores.

 

Pay Off Credit ASAP!

The old belief was that credit card companies prefer those who paid off only the minimum balance due on their cards: it makes sense because the lender makes more money off folks who handle their credit in this manner, given the high cost of interest. The sluggish economy, rising unemployment rates, and collapse of the housing market now have lenders making a slight adjustment in their thinking. The borrow-and-quickly-repay crowd is now their preference. Every bill you pay has the possibility of ending up on your credit report, even non-credit bills. While most won’t, should you happen to fall behind on your payments, it may very well end up  on your credit report.

 

Go Forth and Keep Thy Credit Score High!

So there you have it, a few simple steps that you (or elected officials in Washington) can take to derail the momentum of credit catastrophe and maintain a clean credit score. Of course, the politicians seem to feel they have averted the problem for now, but these tips are still worth keeping in mind. Ten years goes by quickly and Washington’s budget problems are never solved; they are only postponed.

 

How about you?  What has worked and what hasn’t for your credit score?  Share below with your experiences!

 

Filed Under: Credit, Debt Tagged With: ,

Credit Card Mistakes To Avoid at All Costs

August 18, 2011 by

credit card mistakesIn many people’s lives, credit cards tend to take on one of two roles. One is that of an indispensable ally, one that is always available to bail you out of a tough situation at any hour of the day or night. The other? Well, that is of a cruel enemy, dragging you into a deep pit of debt and then slapping you with extra fees when you are down. Even when things are harmonious in your financial house, credit cards can be fickle friends. Make one mistake â“ a single missed payment, one charge too many that pushes you over your limit or simply apply for too many cards â“ and it can have a negative impact upon your credit score. That, in turn, can result in higher interest rates and other bad news for your budget.

Here are a few of the most common â“ and not to mention expensive â“ credit card blunders that are best avoided.

Late Payments

It may be fashionable to be late to a party, but it’s downright dumb to be late paying your credit cards bills. Not only will missing a payment cause your card issuer to charge you a late fee, but it will lead to them increasing the interest rates on your account. Your payment history accounts for about 35% of your credit score and one single messed-up payment can cause your score to take a serious dive. If you are not set up to make payments online, make sure you drop your check in the mail well in advance of its due date.

Making the Minimum

If you are trying to pay a balance, you must make more than just the minimum payment. Consider this example put forth by the website, omaha.com:

With a $5,000 balance and annual interest of 14 percent, a $100 minimum payment will pay off the bill in 22 years, with $6,110 going for interest. If you pay $150 a month, the bill is gone in four years with $1,369 in interest.

Federal Laws are now in place requiring lenders to display, on every statement, how long it would take you to pay off a balance making only the minimum payment. This as well as the monthly amount you would need to pay, in order to pay off the debt in three years.

Withdrawing Cash On Your Card

DO NOT, as in ever, ever, ever, use a credit card for cash advances, except in the instance of an absolute emergency. Aside from the dizzyingly high interest rates associated with pulling out cash on your cards, there are typically additional fees. Also, interest begins to accrue IMMEDIATELY on the amount of cash withdrawn which means that you will be paying back much more than you borrowed even if you quick about it.

Paying An Annual Fee

Some rewards cards come with an annual fee and sometimes those rewards are tied to the amount you charge. So no matter how nifty the perks on your plastic, they may not be worth what you will be paying for them. Make sure you are not tempted to spend more than you normally would on your card just to get those rewards.

You should always take the time to make sure you understand the exact terms of your credit card. That way you will avoid unnecessary fees and penalties. If you are in the market for a new card, comparison sites such as credit land can be an invaluable tool. If you know how to use your credit cards mindfully, your wallet will house plastic pal instead of foes.

photo by moneyblognewz

Filed Under: Credit, Debt, Frugal Living Tagged With: , , , ,

Banks Lose $16 Billion in Swipe Fees

August 6, 2011 by

bank feesThere were no winners when, this month, The Federal Reserve announced its concluding regulations that will cap debit card swipe fees charged retailers at 21-cents per transaction. Financial institutions argue that they stand to lose approximately $16 billion per year in revenue collected from merchants, while merchants criticize that the 21-cent cap does little to alleviate their debt burden to the banks and lenders. With neither side celebrating the passage of this regulation, it is difficult to see who exactly benefits or what effect this regulation will have on consumers.

The lending industry currently claims an average debit card swipe fee of 44-cents, thus, imposing a 21-cent cap would greatly diminish their profits. But as every lawyer and financial expert knows, it’s all in how you crunch the numbers.

The 44-cent average swipe fee is actually a composite of two numbers: fees charged on credit card purchases (exempt from these regulations), averaging 56-cents, and fees charged on debit card purchases, averaging 23-cents. With conditions in place that will sometimes allow the 21-cent fee to be raised as high as 24-cents, retailers argue these new laws are essentially pointless.

Lawmakers had originally been proposing a 12-cent cap on debit swipe fees, and while this would have been a much better resolution for retailers, the banks claimed the profit loss would be great enough as to practically make it unprofitable to maintain debit card purchasing as-is. The compromise was to set the cap at 21-cents, plus 5 basis points on the amount of the transaction for fraud costs, plus 1 cent for fraud prevention costs.

Also, financial institutions with $10 billion or less in assets, governmental benefit cards, and certain prepaid cards are exempt from the new law.  There are fears on the part of all credit lenders, exempt from the new regulation or not, that merchants will begin steering customers away from using their debit cards by offering special deals to those who pay with cash or credit, thus furthering their loss.

The results of these new regulations for the consumer will most likely be slow and subtle. Over time, the financial institutions may look for ways to regain whatever monies are lost. A loss of income is rarely just accepted. Higher ATM fees, tighter restrictions, or simply doing away with free checking are all possibilities, as is the implementation of a debit card swipe fee passed directly to the consumer. Simply upon hearing of impending debit card swipe fee reductions, major lenders such as Wells Fargo, Chase, and SunTrust either eliminated, or greatly curtailed, their rewards programs.

As there is little a consumer can do, caught in middle of this power play between the banks and merchants, it could actually work out to the consumer’s advantage. Should retailers offer discounts to those willing to pay with cash or credit, the consumer will profit from this, much to the chagrin of the banks. However, the banks may decide to make up their losses in other ways, so keep an eye on your interest rates and rewards programs to see if they start to fluctuate.

According to a recent poll taken before the Senate vote, the U.S. News & World Report noted that two-thirds of those polled were against a delay in implementing the new swipe fee limits and would view their Senators less favorably❠if they voted to approve the delay. Why consumer opinion would come down on the side of the retailers over the side of the banks, may have more to do with politics than the bill’s ramifications for the consumer. Since the $700 billion bailout for banks in 2008, these financial institutions have not received much sympathy from the American people.

While the banks and retailers hammer out a compromise, be on the lookout for credit card specific sales. As well, be cautious for increased prices on goods as this law goes into effect this coming October.

Filed Under: Credit, Debt, General Finance Tagged With: , , ,

Alcohol Consumption Puts College Students in Credit Card Debt

August 2, 2011 by

beer moneyAccording to the Trends in College Pricing 2010 report compiled by The College Board, the average estimated undergraduate budget❠for a   student during the 2010-2011 academic year is $20,339 for a four-year public school and $40,476 for a four-year private school. These numbers factor in tuition and fees, room and board, books and supplies, transportation and miscellaneous expenses. But do those numbers include the $500 a year that Rachel Barrington of the University of Wisconsin claims the average college student squanders on alcohol?

Gayla Martindale’s estimate in her article, A Look at the Spending Habits of College Students, posted on the stateuniversity.com blog is somewhat jaw-dropping: Each year, American college students spend $5.5 billion on alcohol.❠That’s a lot of money to be pouring down the hatch, especially in light of the fact that most students enter the workforce after having earned their post-secondary degree, carrying debt that they accrued along the way.

So how is the average, financially-strapped college kid affording all of this booze?

Some students spend using credit cards. In fact, most students â“ some 75% of females and about 70% of males â“ have 1-3 credit cards. The cost of teenage alcoholism is high, from the expenses they incur during their drinking sprees to the toll it takes on their health.  Plastic is used by many to charge school necessities such as books, supplies, and even tuition. Credit cards are relied upon by students for discretionary spending as well. While it can be advantageous for a student to begin building his or her credit score while still in school, the risk is that the temptation is there to fund fun nights of drinking with friends while sinking into a pit of debt.

According to a 2009 article published by Sallie Mae, entitled How Undergraduate Students Use Credit Cards, Undergraduates are carrying record-high credit card balances. The average (mean) balance grew to $3,173, the highest in the years the study has been conducted. Median debt grew from 2004’s $946 to $1,645. Twenty-one percent of undergraduates had balances of between $3,000 and $7,000, also up from the last study.â

At California State University Fullerton, workers in their administration office claimed that their institution sees more students discontinue their education due to credit card debt more often than due to academic failure these days.

The National Association of Scholars (NAS) uncovered in a 2009 article that A recent survey of more than 30,000 first year students revealed that nearly half were spending more hours drinking than they were studying.â

That means many college undergrads are opting to drink away dollars that would better serve them by being put towards school-related expenses. In turn, perhaps less drinking would result in fewer students dropping out due to their insurmountable debt.

If it’s true that, as Caralee Adams reports in her article Lack of College-Educated Workers Will Hurt Economy, Americans that have graduated college with a bachelor’s degree earn an annual salary that is an average of 74% higher than those earned by workers with only a high school diploma. Students who focus on overdrinking during college, rather than studying, may be doing much more than merely drinking away time and money that could otherwise have been better spent. They could very well be drinking away their future earning power.

photo by greencolander

Filed Under: College Finances, Credit, Debt, General Finance Tagged With: , , ,